I despair. Not three months ago, Vince Cable and Mark Carney were worried about ‘a run away’ residential property bubble and I commented, at the time, that they seem to be detached from what was going on in ‘the trenches’.
Again, as I predicted, the London property market was cooling down significantly, even in the lower price ranges. The high price range properties have shown no price growth whatsoever recently and the market outside of the villages of Central London, at the higher end, is 10-15% below its peak two years ago.
There are far fewer International buyers around having been put off by the sharp rises in Stamp Duty and the fear of Mansion Tax.
Mr. Carney seems to have got himself into a ‘buggers muddle’ on interest rates. Not long ago he was intimating that the trigger for a rise was a 7% unemployment rate and that, in his opinion, it would not happen until 2016.
Here we are, with an unemployment rate of 6.2% (and falling), with deflation abounding, which will probably mean that interest rate rises will not now happen until 2016.
This means that the fear of increases in the mortgage rate may be over-done and therefore it should bring some more stability to the housing market in all price ranges.
Retailers are reporting sluggish autumn sales (not assisted by the Indian summer) and, since we are in a consumer led recovery, we need the positive sentiments that are stimulated by a healthy and thriving housing market.
Growth of circa 5% is a good thing since debt shrinks in relation to equity and that makes everyone feel better off.
To anyone that will listen out there, one has to be careful that the ‘medicine does not kill the patient’. The property market is one of the vital stimulants of the economy and if you kill off the growth, this will impact badly on our recovery that is already under threat from the dire problems that exist in Europe, and the slow down from China and Asia.
Up until now, we have enjoyed a unique growth spurt that is the envy of the G7 countries and we must not put this at risk by hoping for a dampened property market.
Mansion Tax will ‘drive a coach and horses’ through the market. Property prices will drop, initially at the higher end by up to 25%, with massive over-supply and only ‘bottom feeders’ brave enough to buy and this will cascade down to the lower prices before too long.
Be careful what you wish for.